The European Union's top diplomat Federica Mogherini also condemned the law.

"The EU urges the Israeli leadership to refrain from implementing the law and to avoid measures that further raise tensions and endanger the prospects for a peaceful solution to the conflict," said Mogherini.

The law legalises dozens of wildcat outposts and thousands of settler homes in the occupied West Bank and prompted a call by the Palestinians for the international community to punish Israel.

Pro-Palestinian Israeli NGOs said they would ask the Supreme Court to strike down the law, while Israeli opposition leader Isaac Herzog warned the legislation could result in Israeli officials facing the International Criminal Court.

France called the bill a "new attack on the two-state solution," while Britain said it "damages Israel's standing with its international partners".

Turkey "strongly condemned" the law and Israel's "unacceptable" settlement policy and the Arab League accused Israel of "stealing the land and appropriating the property of Palestinians".

UN envoy for the Middle East peace process Nickolay Mladenov told AFP the bill crossed a "thick red line" toward annexation of the West Bank - the largest part of the Palestinian territories.

"(The law) opens the potential for the full annexation of the West Bank and therefore undermines substantially the two-state solution," he said.

US silence

The United States, however, refused to comment, in stark contrast to the settlement criticism repeatedly voiced under Barack Obama.

The State Department said President Donald Trump's new administration "needs to have the chance to fully consult with all parties on the way forward."

Separately to the new law, Israel has approved more than 6,000 settler homes since Trump took office on 20 January, having signalled that it didn't see new settements as a roadblock to peace.

The law, which passed 60 to 52 in its final reading, will allow Israel to legally seize Palestinian private land on which Israelis built outposts without knowing it was private property or because the state allowed them to do so.

Palestinian owners will be compensated financially or with other land, the law says.

It would apply to around 53 outposts as well as some houses within existing settlements, potentially legalising more than 3,800 homes, according to anti-settlement NGO Peace Now, which called the law "another step towards annexation and away from a two-state solution."

The law could still be challenged, with Defence Minister Avigdor Lieberman saying last week it was likely to be struck down by the Supreme Court.

International law considers all settlements illegal, but Israel distinguishes between those it sanctions and those it does not, which are known as outposts.

The new law would protect settlers against eviction from outposts discovered to have been built on private Palestinian lands such as in the case of Amona, where 42 families were evicted and their homes demolished in recent days at the order of the Israeli Supreme Court.

'Jewish land'

To some Israelis, the law reflects their God-given right over the territory, regardless of the courts, the Palestinians and the international community.

"All of the land of Israel belongs to the Jewish people," said Science Minister Ofir Akunis, a member of Prime Minister Benjamin Netanyahu's Likud party, using the biblical term that includes the West Bank. "This right is eternal and indisputable."

Palestinian official Hanan Ashrawi called for the international community to assume its "moral, human and legal responsibilities and put an end to Israel's lawlessness."

The act marked the first time Israel applied its civil law to land in the West Bank recognised as Palestinian, law professor Amichai Cohen told AFP.

ICC warning

UN envoy Mladenov also raised the possibility of potential court cases in the International Criminal Court against Israeli officials.

Israeli Attorney General Avichai Mandelblit has also warned the government that the law may be unconstitutional and risks exposing Israel to international prosecution for war crimes.

Human Rights Watch said the legislation "reflects Israel's manifest disregard of international law".

"The Trump administration cannot shield them from the scrutiny of the International Criminal Court", HRW warned.

Bezalel Smotrich of the far-right Jewish Home party, who was one of the forces behind the legislation, thanked the American people for electing Trump as president, "without whom the law would have probably not passed".